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Phoenix Named 8th Best City to Invest in Real Estate on a Budget

by Dalton Herring on July 25, 2016

These days everyone wants to be the next big-time real estate mogul. And why not? It entails a lifetime of partying with the Hollywood elite, flying on personal jets emblazoned with your name, putting out inspirational, ghost-written best-sellers, or maybe even getting yourself on a presidential ticket. It doesn’t sound half-bad, right?

It’s no wonder the idea of flipping—buying low, fixing up, and selling high—has become a bit of a national obsession over the past decade or two. It’s led to a dozen or so fun, fantasy-tinged reality shows (yay!). It also helped accelerate the housing crash back in those wacky days of low- or no-cost credit (boo!). But it comes with challenges. For us ordinary Americans—the other 99%—particularly those living in the country’s most expensive cities, buying just one home, or trading up to a larger one, is daunting enough. After all, prices are continuing to rise and inventories are continuing to drop.

So what’s an aspiring real estate investor or wannabe landlord to do?

For more and more people, the answer is to head straight out of town. Increasingly, those on a budget are looking beyond their pricey hometown cities to purchase investment properties in other, lower-cost metros where prices and rents are steadily going up.

The timing is right to invest in real estate: Median prices on existing (and not newly built) homes are expected to increase 6% this year, according to realtor.com®. That makes housing a stronger bet than other investment opportunities such as the stock market, which has been delivering anemic or wildly uneven returns.

Plenty of investors do not “want to stomach the volatility of the [stock] markets … and like having a tangible investment that they can see, touch, and feel,” says Jason Stock, an investment adviser with CalChoice Financial. His firm helps investors add single-family homes to their retirement portfolios, he says.

And here’s the thing: Even when times get tough, or the country falls into a recession, rental properties still do relatively well.

“Rents will go down a little bit—but people still need places to live,” says Steven Hovland, director of research at HomeUnion, an Irvine, CA–based company that helps everyday investors find, buy, and manage their properties for a fee.

Where should budget-minded investors turn?

HomeUnion crunched the numbers for realtor.com to help us find out. We looked at metrics for both flippers and landlords. We sought out the top 10 metropolitan markets for the best first-year home price appreciation for investors who plan to sell their properties. Then we separately found the top 10 metros where buyers can get the biggest first-year rental returns as landlords.

For both lists, HomeUnion looked only at standalone single-family homes in the still reasonably affordable price range of $232,500 and under. The figure represents the median price of existing residences in April, according to the National Association of Realtors®.

So once you smash that piggy bank to bits, exactly where should you invest your hard-earned cash?

First up, let’s look where investors can expect home prices to rise, ensuring a profitable sale of their property.

Top-10-Metros-for-Price-Appreciation

To come up with the list, HomeUnion:

  • Factored in metros where prices haven’t returned to their prerecession peaks.
  • Compared prices from the first quarter of 2015 to the first quarter of 2016.
  • Forecast future rent growth by looking at local economies, employment numbers, and previous rent hikes and drops. Because we’re making the assumption that you’ll rent out the place before you buckle down and sell it.

 

The rankings included a variety of factors, which is why some cities with lower appreciation rates may appear higher on the list.

So let’s take a closer look at our top 10 list, shall we?

  1. Jacksonville, FL, at 3.6%
  2. Tampa, FL, at 4.4%
  3. Orlando, FL, at 3.7%
  4. Chicago, IL, at 4.2%
  5. Detroit, MI, at 3.1%
  6. Las Vegas, NV, at 4.7%
  7. Cincinnati, OH, at 3.4%
  8. Phoenix, AZ, at 4.8%
  9. Cleveland, OH, at 3.4%
  10. Minneapolis, MN, at 3.4%

By
Peter Ortiz at realtor.com

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